California Gov. Gavin Newsom signed into legislation a collection of payments final week that deal with a few of the most sizzling button matters in healthcare, together with the practices of pharmacy profit managers and personal fairness corporations.
The laws is the newest instance of state lawmakers taking healthcare coverage into their arms, following stalled efforts on the federal stage.
Some legal guidelines within the bundle will cut back payers’ prior authorization necessities for generally accepted procedures or strengthen hospitals’ charity care applications — which is meant to assist sufferers obtain medically crucial care sooner and at an acceptable price.
Nonetheless, probably the most vital reforms impose stricter guardrails on a few of healthcare’s most controversial gamers: pharmacy profit managers and personal fairness corporations.
‘Sweeping reform’ of pharmacy profit managers
Senate Invoice 41, signed into legislation Friday, will impose stronger rules on PBMs working within the state.
Critics accuse PBMs of driving up costs for pharmaceuticals and steering enterprise away from small, impartial pharmacies. The biggest PBMs — CVS’ Caremark, Cigna’s Categorical Scripts and UnitedHealth’s Optum Rx — collectively management 80% of the U.S. prescription drug market.
The drug middlemen negotiate reductions with pharmaceutical producers in return for favorable placement on plans’ formularies and pay pharmacies for allotting remedy.
The Federal Commerce Fee beforehand discovered the most important PBMs paid impartial pharmacies decrease charges than their in-house pharmacies and funneled enterprise to their owned subsidiaries. The PBMs have additionally been accused of pressuring impartial pharmacies to simply accept coercive charges.
“PBMs have developed a compensation scheme that creates perverse incentives to boost drug costs in some circumstances, and the entire lack of oversight has additionally allowed some PBMs to steer sufferers towards pharmacies they personal, pocket massive parts of the rebates they negotiate with drug producers, and make deceptive statements to prospects,” stated the invoice’s creator, state Sen. Scott Wiener, D-San Francisco.
California’s legislation will prohibit unfold pricing, a follow the place PBMs cost insurers a better worth for a drug than what they reimburse to the pharmacy. It additionally prohibits PBMs from steering sufferers to owned pharmacies.
It additionally would require PBMs to move all rebates by way of to the payer, ban PBMs from making exclusivity offers with drugmakers and require PBMs working within the state to be licensed by the Califronia Division of Insurance coverage.
The legislation takes impact Jan. 1, 2026.
Different states have tried to crack down on PBMs. Arkansas handed probably the most sweeping reform earlier this 12 months when it banned PBMs from proudly owning pharmacies. Nonetheless, the legislation obtained pushback from the PBM business and a decide blocked the legislation from going into impact in July.
The Pharmaceutical Care Administration Affiliation, a PBM foyer, solid blame on drug makers in a press release over the weekend.
“It’s a failure of the Newsom administration to fall for Huge Pharma’s ploy guilty their excessive record costs on others and to undermine the very mechanisms that truly decrease prescription drug prices,” the PCMA stated. “Nothing in SB 41 will decrease drug prices for Californians.”
Second non-public fairness invoice signed into legislation
Newsom additionally signed Meeting Invoice 1415 into legislation on Saturday, which would require non-public fairness corporations to inform the state’s Workplace of Well being Care Affordability earlier than executing main healthcare transactions, together with mergers and acquisitions.
The brand new legislation solely permits regulators to overview transactions, however doesn’t give them energy to veto offers. It comes days after Newsom signed SB 351 into legislation, which bars non-public fairness corporations from interfering in medical decisionmaking.
Backers of SB 351, together with state Sen. Christopher Cabaldon, say non-public fairness funding in healthcare has “quintupled over the previous decade,” and that the brand new rules are designed to make sure California has fashionable instruments to supervise the actors, shield sufferers and safeguard towards rising prices.
“Californians deserve a full image of the billions spent yearly in our well being care system by massive non-public fairness corporations. AB 1415 ensures that our Workplace of Well being Care Affordability has the authority to watch these transactions and shield sufferers from rising prices and lowered entry to care,” stated California Meeting member Mia Bonta in a press release.
Newsom vetoed an identical invoice final 12 months that may have allowed the state’s legal professional common to overview and probably axe healthcare transactions involving non-public fairness corporations. On the time, Newsom stated the state’s Workplace of Well being Care Affordability was higher suited to overview non-public fairness offers. The workplace already analyzes how sure transactions would possibly affect market competitors, together with the state’s potential to fulfill spending or affordability targets, for instance.
The state’s concentrate on non-public fairness comes as California has seen an explosion of personal fairness funding, in accordance with a report from the California Well being Care Basis. Non-public equity-backed acquisitions accounted for about one-third of healthcare offers throughout the state between 2019 and 2023.
